Report | August 2020

Potential Effects on Tobacco Tax Revenues of a Ban on the Sale of Flavored Tobacco Products

Introduction the 25 percent of adult smokers who smoked menthol cigarettes, just under half said that they In recent years, state and local governments in the would quit smoking in response to a ban on the sale U.S. have implemented policies banning the sale of of menthol cigarettes, about one in four would flavored tobacco products and/or flavored liquids switch to non-menthol cigarettes, and about one in used in vaping. Some of the policies are relatively eight would switch to menthol e-cigarettes; the comprehensive, with the most comprehensive remainder would switch to another menthol tobacco banning the sale of all flavored products, including product, buy menthol cigarettes on-line or from menthol cigarettes and mint/menthol flavored e- another country, or switch to another non-menthol liquids. At the same time, policies banning the sale tobacco product. In contrast, Rose and colleagues of flavored tobacco products have been implemented (2019), using the longitudinal data from the Truth at the national level in a few countries, including Initiative young adult cohort found that menthol Canada (following the implementation of provincial- smokers were more likely to switch to non-menthol level flavor bans in several provinces), Ethiopia, cigarettes (almost one in three) than to try to quit Senegal, and Uganda, while a growing number of (less than one in four). In general, studies that others have adopted but not yet implemented similar assess what menthol smokers say they are likely to policies. Efforts to evaluate the effects of these do in response to a ban on the sale of menthol policies on prevalence, consumption, and sale of cigarettes produce a wide range of findings, with tobacco and vaping products are ongoing and new switching to non-menthol cigarettes and trying to evidence is rapidly emerging. quit smoking as the most likely responses.

Literature Review Other studies have used experimental approaches to A variety of methodological approaches have been assess the role of flavors in product choices among applied in efforts to understand the potential and tobacco and other nicotine product users. These actual impact of a ban on the sale of flavored tobacco studies have generally taken a broader approach and other nicotine products on the use of these considering a wide array of flavors and products, in products and on overall tobacco product use. This contrast to the studies that ask menthol smokers section briefly reviews the key findings from these about their responses to a ban on the sale of menthol studies. cigarettes. Buckell and colleagues (2017, 2019, 2019), for example, conducted discrete choice Several studies have assessed the impact of a flavor experiments with adult smokers and young adult ban by asking tobacco users how they would respond smokers, vapers and/or recent quitters that to the implementation of a ban. Many of these have considered a variety of flavor bans, including a ban focused on a ban on menthol cigarettes, with on menthol cigarettes only, a ban on flavored e- potential responses for menthol smokers including liquids only, and a comprehensive flavor ban on all quitting, switching to non-menthol cigarettes, and products. They found that banning flavors in one switching to menthol or other flavored other tobacco product but not another led to some quitting but also products, while also considering changes in daily substitution to other products (e.g. a ban on menthol cigarette consumption among those who switch to cigarettes led to an increase in use of e-cigarettes), non-menthol cigarettes. D’Silva and colleagues while a comprehensive ban on flavors would (2015), for example, using data from the 2014 increase the likelihood of ‘opting out’ (quitting) the Minnesota adult tobacco survey found that among most, with a relatively large reduction in e-cigarette

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use and a modest increase in cigarette use. In The most relevant evidence, however, comes from another discrete choice experiment, Shang and Canada, where comprehensive bans on the sale of colleagues (2018) found that flavors were the most menthol cigarettes were implemented in recent important product attribute in youth e-cigarette years, beginning at the provincial level with Nova choices, concluding that a ban on flavored e-liquids Scotia’s ban implemented in May 2015 and could reduce vaping uptake among youth. In an culminating in a national ban in October 2017. In a alternative approach, Guillory and colleagues (2019) series of studies, Chaiton and colleagues examined examined menthol smokers’ product choices in a the effects of the ban on menthol cigarette sales in virtual store, where the mix of available products Ontario, implemented on January 1, 2017. One was varied to reflect bans on the sale of menthol month after implementation, they found that almost cigarettes and other menthol tobacco products, three in ten menthol smokers tried to quit smoking, finding that some menthol smokers did not purchase double the number that indicated that they would try any cigarettes when menthol products were banned, to quit prior to the implementation of the ban while many purchased a non-menthol brand. In yet (Chaiton, et al., 2018). In a follow up study, Chaiton another experimental approach, Bold and colleagues and colleagues (2019) found that quit rates among (2019) assessed the impact of substituting non- menthol smokers were almost 50 percent higher one menthol cigarettes for menthol cigarettes among a year after the ban compared to quit attempts among group of menthol smokers, finding that the switch non-menthol smokers (63 percent for daily menthol led to an increase in motivation to quit and a smokers, 62% for non-daily menthol smokers, and reduction in average cigarette consumption. In 43% for non-menthol smokers), with similar general, studies using various experimental differences observed for successful quitting (24 approaches find that flavor bans would likely reduce percent for daily menthol smokers, 20 percent for the use of tobacco and other nicotine products by non-daily menthol smokers, and 14 percent for non- inducing quitting and deterring uptake while at the menthol smokers). Most recently, in a two-year same time leading some to switch to non-flavored followup, Chaiton and colleagues (2020) found that products in response to the ban. the differences in quitting between menthol and non-menthol smokers grew over time, with less Additional evidence on the potential impact of a relapse among menthol smokers than among non- flavor ban comes from studies based on US data. menthol smokers. Chaiton and colleagues (2019) Courtemanche and colleagues (2017), using data also observed a significant decline in sales of both from the 1999-2013 national youth tobacco surveys menthol and all cigarettes following the Ontario ban, found that the implementation of the 2009 ban on while seeing no significant change in sales in British the sale of flavored cigarettes reduced the prevalence Columbia, where a ban had not been implemented. of youth smoking and the average number of Finally, Soule and colleagues (2019) found that cigarettes consumed by young smokers, but Ontario’s menthol ban also induced menthol increased the likelihood that young smokers chose smokers to switch to non-menthol cigarettes and to menthol cigarettes, cigars, and pipes. Tauras and seek menthol cigarettes from other sources, colleagues (2010), using data from the 2003 and including in the ‘black market’, on First Nation 2006/07 waves of the Tobacco Use Supplement to reserves, or in other jurisdictions. the Current Population Survey found some evidence of substitution between menthol and non-menthol Evidence on the impact of Canada’s national cigarettes based on differences in relative prices, but menthol ban is beginning to emerge. Data from concluded that the two were imperfect substitutes recent waves of the International Tobacco Control for one another, particularly for young adults and Policy Evaluation Study’s (ITC Project) longitudinal African Americans. Again, the limited studies of this surveys of smokers in Canada are consistent with the nature suggest that a comprehensive ban on flavored findings from Chaiton and colleagues research on tobacco and other nicotine products would be the impact of the Ontario ban (Chung-Hall, et al., effective in reducing the overall use of 2020). Specifically, the ITC-Canada surveys were tobacco/nicotine products, while at the same time conducted from July through November 2016 and inducing substitution towards non-flavored from April through July 2018. The 2016 surveys products. were conducted after the implementation of provincial bans in Nova Scotia, Alberta, and New Brunswick, but before or during the implementation

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of provincial bans in Quebec (August 2016), Ontario Yang and colleagues (2020) provide early estimates (January 2017), Prince Edward Island (May 2017), of the impact of San Francisco’s comprehensive and Newfoundland and Labrador (July 2017). The flavored products ban on the use of tobacco and national ban was implemented in October 2017, other nicotine products among young adults. They between the two waves of the survey. The timing of find that the ban was effective in reducing the use of the surveys allowed the ITC team to assess the flavored tobacco and vaping products, as well as impact of the provincial and subsequent national overall use of vaping products and cigars, but at the menthol bans on 1,319 smokers who were not same time led to an increase in cigarette smoking. subject to the ban in the 2016 wave of the survey. Consistent with the research from Canada, they The ITC researchers found that menthol smokers found that some respondents were able to avoid the were more likely to try to quit than non-menthol ban by buying from jurisdictions not subject to the smokers after the ban (60 percent vs. 48 percent), policy, including from on-line vendors and localities and were twice as likely to have quit smoking for at outside of San Francisco. The authors note that their least six months (12 percent vs. 6 percent). More study is subject to a number of limitations and that than half (55 percent) of menthol smokers switched more research is needed to fully understand the to non-menthol cigarettes following the ban, while impact of the ban. almost one in five menthol smokers continued to smoke menthol cigarettes after the ban (mostly To summarize, research on the potential and actual purchased on First Nations reserves, but also from effects of comprehensive bans on the sale of flavored outside Canada, online, or in duty free shops). In tobacco and other nicotine products suggests that addition, the ITC team found that relatively small these policies will have an impact on the use of the percentages of menthol smokers switched to vaping ban products and on overall use of tobacco and (including both non-menthol and menthol product) vaping products. These effects include increases in and dual use of non-menthol cigarettes and vaping cessation among flavored product users, as well as products. reductions in initiation among potential users. At the same time, many continuing users are likely to In contrast, Carpenter and Nguyen (2020) found substitute to non-flavored products, while some will that the provincial and national bans led to a mix of avoid/evade the policy by obtaining flavored intended and unintended effects. Based on their products on-line, from jurisdictions where the analysis of provincial sales data, they found that the products remain available, or through illicit vendors. bans were effective in virtually eliminating menthol cigarette sales, but had little impact on non-menthol Modeling the Impact of a Comprehensive Flavor cigarette sales. The lack of impact on non-menthol Ban on Tobacco Tax Revenues and Public sales is not surprising, given the very low market Health share for menthol cigarettes– less than three percent The Canadian experience with a ban on menthol – in the years leading up to the national ban, as well cigarette sales provides the most relevant evidence as the increased taxes and implementation of plain for modeling the potential impacts of a packaging in the year following the national ban. comprehensive flavor ban on tobacco use and Similarly, based on their analysis of survey data, they tobacco tax revenues. Research indicates that the found that the bans significantly reduced the Canadian ban significantly increased smoking prevalence of menthol cigarette smoking among cessation among menthol smokers, with cessation both youths and adult. However, they found that rates 50 to 100 percent higher for menthol smokers youth smoking prevalence was unaffected as young than for non-menthol smokers following the smokers switched from menthol to non-menthol implementation of the provincial and national bans. cigarettes, in contrast to their finding that there was Given this range, I assume that a comprehensive no substitution from menthol to non-menthol flavor ban will raise the quit rate for menthol cigarettes among adults. Finally, similar to the ITC smokers by 75 percent relative to that of non- team, Carpenter and Nguyen found that some menthol smokers. Given estimates that 7.4 percent menthol smokers evaded the bans by purchasing of smokers are recent quitters (Babb, et al., 2017), menthol cigarettes on First Nations reserves. this implies that the quit rate for menthol smokers Finally, very preliminary research on the impact of would rise to nearly 13 percent following the local flavor bans is starting to emerge in the US. implementation of a comprehensive flavor ban, or

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that almost 5.6 percent of menthol smokers would products for the period 2011 through 2015. Using quit in the short run in response to a ban. Based on the average shares for these five years, I constructed data from the 2014/15 Tobacco Use Supplement to an estimate of the share of flavored (menthol and the Current Population Survey (TUS-CPS), just over other flavors) other tobacco product sales by state. three in ten smokers (31.2 percent) smoked menthol This estimate is a weighted average of the shares by cigarettes, ranging from a low of 20 percent in product, where the weights are based on Montana to a high of 40.8 percent in Hawaii. Based Euromonitor data for the share of sales value on the same TUS-CPS data, menthol smokers smoke accounted for by each type of product. Assuming fewer cigarettes per month, on average, than non- that the reductions in sales of other flavored tobacco menthol smokers – 324 cigarettes vs. 374 cigarettes, products are of a similar magnitude to the reduction respectively. Given the prevalence of menthol in the sale of menthol cigarettes, I estimate that smoking and lower average cigarette consumption other tobacco product sales and resulting other among menthol smokers, menthol cigarettes account tobacco product tax revenues would fall by 10.5 for approximately 28.3 percent of total cigarette percent overall. Estimated declines in other tobacco consumption. Taken together, these data imply that product sales vary considerably across states, from a a comprehensive flavor ban would reduce overall low of 6.9 percent in Idaho to a high of 16.0 percent cigarette consumption by nearly 1.6 percent on in the District of Columbia. average, given increased cessation among menthol smokers. This projected reduction in consumption These estimated reductions in revenues are based on varies from 1.1 percent in Montana to 2.3 percent in limited data and research evidence and are likely to the District of Columbia. be imprecise. To some extent, they are likely to overstate the actual declines in revenues as they do Among menthol smokers who continue to smoke not consider the substitution between cigarettes and after the ban, many will switch to non-menthol other tobacco products that might result from a cigarettes or other tobacco products, while some will flavor ban and given that at least some tobacco users continue to smoke menthol cigarettes. The who quit in response to the ban may eventually Canadian data suggest that roughly 70 percent of relapse and consume non-flavored products. They those who continue to smoke will substitute to non- will likely overstate the decline in revenues in states menthol cigarettes, with the remainder purchasing where there are fewer opportunities for tobacco menthol cigarettes from jurisdictions where they users to avoid the ban, while understating declines continue to be available and/or from illicit sources, in states where there are relatively more or switching to other tobacco/nicotine products. opportunities to avoid the ban. Strengthened These data imply a potential reduction in tax paid enforcement and increased penalties on illicit cigarette sales due to avoidance and evasion of the traders can reduce illegal sales of flavored products ban or switching to other products of eight percent, and lessen the impact of the flavor ban on tobacco ranging from a low of 5.5 percent in Montana to a tax revenues. high of 11.7 percent in the District of Columbia. While a comprehensive flavor ban would lead to Together, overall tax paid cigarette sales would fall modest reductions in tobacco tax revenues, it will by 9.6 percent in response to a comprehensive flavor also improve public health given the reductions in ban, with a corresponding reduction in cigarette tax tobacco use that result. As described above, a revenues. The extent of the expected declines varies comprehensive flavor ban will result in almost 5.6 across states, with relatively larger reductions in percent more menthol smokers quitting smoking in states with more menthol smokers and/or in states the short run. Given an estimated 37.5 million adult where menthol smokers consume relatively more current smokers, 31.2 percent of whom smoke cigarettes. menthol cigarettes, this implies over 650,000 adults would quit smoking in response, resulting in over Projecting the impact of a comprehensive flavor ban 150,000 fewer deaths caused by smoking. In on use of and tax revenues from other addition, the limited existing evidence suggests that tobacco/nicotine products is more speculative given a comprehensive ban would also deter numerous the limited data available. Kuiper and colleagues young people from taking up tobacco use, adding to (2018) report the share of sales, by state and year, the public health benefits. for menthol and non-menthol flavored other tobacco

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In addition, the reductions in tobacco use would lead billion dollars in Medicaid spending in the year after to considerable health care cost savings. A recent its implementation. Finally, based on estimates study by Glantz, for example, found that a one from Hodgson (1992), updated for inflation, smokers percentage point reduction in smoking prevalence who quit will save about $16,000 in lifetime health nationally would reduce Medicaid costs by $2.5 costs, implying an overall reduction in smoking- billion in the next year, implying that a attributable lifetime health care spending of over comprehensive flavor ban could save almost four $10.4 billion among current menthol smokers.

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Suggested Citation

Chaloupka, F.J. Potential Effects on Tobacco Tax Revenues of a Ban on the Sale of Flavored Tobacco Products, University of Illinois at Chicago, 2020.

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